Warning over insurance scandal

IN a plea for more openness and honesty in corporate America, former Securities and Exchange Commission chairman Arthur Levitt warned today that the current probe into the insurance industry threatens to be the most destructive scandal so far.

'The insurance scandal has struck me by total surprise. It is really far more pernicious than almost any other scandal of this decade,' Levitt said.

New York Attorney General Eliot Spitzer is suing insurance broker Marsh & McLennan for allegedly rigging the market by getting fees in exchange for steering business to certain insurers.

The probe has widened with at least three other states launching investigations. London broker Willis yesterday adapted its practices in the light of the investigation in the hope of shoring up confidence among clients. Marsh & McLennan and insurance giant AIG have already shelved the schemes, which could lead to a big earnings hit at Marsh.

Levitt, who headed the SEC between 1993 and 2000, said the scandal could potentially affect the average person more than the mutual fund scandals. Spitzer launched the investigation into arrangements under which some fund companies gave preferential treatment to certain investors over ordinary mutual fund holders.

He also urged companies to be more transparent in disclosing how they pay senior management. The SEC should require companies to disclose whether executive compensation was performance-based and, if so, what were the performance triggers, Levitt said.

Meanwhile, it emerged that the trade body for European corporate insurance buyers plans to push the European Commission to force brokers to reveal how much commission they are paid by insurance companies. Thierry Van Santen, chairman of the Federation of European Risk Management Associations, said he would talk to officials in December.